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A second mortgage may provide the average consumer with numerous advantages that are not available with other types of consumer loans. Interest rates can be considerably lower than loans from credit cards; in fact, the interest rates can be up to 75 percent lower! In addition, the interest on home equity loans is deductible up to $100,000, which represents a considerable advantage over credit card loans. A regular home equity loan offers the convenience of a regularly scheduled group of payments. For greater flexibility, borrowers can obtain a revolving line of credit, which can be used again and again as needed, with no payments required unless the borrower actually writes a check against it.
Unlike credit card loans, home equity loans are secured loans. The value of the loan is protected when the homeowner provides their home as collateral. Suppose that the original purchase price of your home was $200,000, and you have paid off $40,000, and the home has increased in value by $60,000 since you bought it. You now owe $160,000, but the home is now worth $260,000, leaving you with $100,000 in equity. You may borrow against that $100,000 by using a home equity loan or as they are sometimes known, a second mortgage.
Lenders such as banks, credit unions and mortgage companies tend to like providing second mortgages . Lenders know that the home likely represents the borrower’s largest asset, and that few homeowners would be willing to lose their home by not making their payments. This has resulted in default rates that are substantially lower than for other types of loans, typically about 2% per year. These transactions represent “safe” loans for the lender, and the “safety” of these loans results in lower interest rates for the borrower than credit card loans.
What can people who borrow do with the money? There are many uses.
Debt Consolidation - Homeowners can combine several debts into one, lower-interest payment.
Home Improvement- Adding a deck or patio or remodeling a bathroom or kitchen can increase the value of your house
Student Loan Repayment - High-interest educational loans can be consolidated.
Medical Bills - Unexpected medical emergencies are ideal uses, especially since the interest is tax-deductible.
The average borrower will have a choice of either a line of credit, or a standard term loan. Each has their good and bad points, and the individual borrower will have to decide which type best suits their needs.
Application Fees can be considerable; here’s what you need to know.
To find out more about these types of loans and to see which one may be right for you, see our loan types page.
You can find out how much your payments will be using our mortgage calculator.
With a little bit of planning, you can obtain a loan that will help you be more financially secure.
If you have a home loan with a high rate of interest, you may want to mull over refinancing your mortgage. You may consolidate your debt and reduce your monthly mortgage payments. Ameriquest Mortgage can help you refinance now.
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